Issues Specific To Your Form Of Company –
Taxes, taxes, form of investment and, of course, taxes. Other than real estate, is there a topic that folks like to discuss more? Tax considerations are one of the driving forces in deciding what form your business should take (corporation, limited liability company, partnership), the jurisdiction in which you should form your company in, and how you wish to treat your income or (heaven forbid), losses. Unfortunately, tax law is truly a specialty and I’m not a tax specialist so I’m not going to spend much time on this topic. Some highlights, however, that you may want to focus on with your accountant or tax specialist: Where are the principals of the company located, where will the business be located, where will sales be made or services performed, and for the purposes of your partnership agreement, how will profits and losses be treated (passed through to the owners, reinvested in the business and every mutation of these two)? Closely related to this issue are the issues of capital allocation, ownership interests and valuation. Will the owners have equal rights, will certain classes of ownership have preferences (distributions, priorities), and how will each owner’s contributions be valued (cash, sweat equity, intellectual property contributions)? Okay, so simple simply doesn’t work in this particular case – rather decisions must be made with the advice of a tax specialist, a lawyer and, of course, any decision must take into account basic “fairness” principles or the parties will end up resenting each other and we’re back to Universal Issues – Disposition of Interests. Finally, let’s not forget decisions made in this particular space can have lasting implications and may not be easily undone so “saving the hard stuff for later” is not the prudent response.
Next installment, a new topic Intellectual Property – Confidentiality, and remember, ALWAYS CONSULT AN ATTORNEY FIRST.